The Ministry of Commerce and Industry has ushered in a transformative era with the introduction of the Special Economic Zones (Fifth Amendment) Rules, 2023. Specifically tailored for IT enterprises and Information Technology Enabled Services (ITES) SEZs, this amendment introduces a ground-breaking concept—non-processing areas, geared towards fostering enhanced development. This is a revolutionary change as an addendum to the SEZ Act, 2005.
The addendums according to the the Fifth Amendment are as follows:
Dubbed the "Special Economic Zones (Fifth Amendment) Rules, 2023," these rules come into effect upon their publication in the Official Gazette, 6th December 2023 onwards. Rule 11B emerges after its predecessor, rule 11A of the Special Economic Zones Rules, 2006.
- Sub-leasing non-processing areas (Section 11B): Developers now have the liberty to request the demarcation of a non-processing area within IT/ITES SEZs. These areas can harbour businesses engaged in IT or ITES services, abiding by conditions set by the Board of Approval. Specific guidelines mandate that a non-processing area must encompass complete floors, fortified with appropriate access control mechanisms. These surplus areas can be sublet to other tenants that fit the criteria of an SEZ based business.
- Tax Rebate Repayment (Section 11B, Sub-rules 5-6): Developers must now repay tax benefits tied to the non-processing area without incurring interest. Repayment calculations align with the benefits provided for the processing area, as specified by the Central Government. A Chartered Engineer steps in to issue a certificate, determining the repayment amount.
- Spatial Checks (Section 11B, Sub-rule 7): The demarcation of a non-processing area is now subject to restrictions preventing a decrease in the processing area below specified thresholds, categorised by city types.
- Navigating Limits of Non-processing areas(Section 11B, Sub-rules 8-9): Businesses within non-processing areas face restrictions, barring them from enjoying rights or facilities available to SEZ Units. Tax benefits are off the table for the operation and maintenance of common infrastructure in these SEZs. Furthermore, businesses in non-processing areas must comply with Central Acts, rules, and orders applicable to entities in the domestic tariff area.
In Conclusion
The 2023 amendment to the Special Economic Zones (SEZ) rules introduces a sophisticated framework designed for the advancement of IT and ITES SEZs. The novel inclusion of non-processing areas aims to stimulate the expansion of IT zones while guaranteeing adherence to regulatory standards. It also aims to maintain a careful equilibrium between tax advantages and spatial prerequisites. This modification underscores the government's dedication to cultivating an environment conducive to the growth of the IT and ITES sectors within the SEZ framework.
